DMG detunes Virgin's bid for FM network

(L-R): A Virgin win in Sydney would have been "very dangerous" for DMG, said its CEO and winning bidder Paul Thompson, far right; For Virgin's bidder Bill Spain, Melbourne and Brisbane licences are still alive.
Pictures: Ben Rushton

DMG Radio has snared a sixth metropolitan FM radio licence in Australia, after yesterday bidding $106 million for a new Sydney licence at an Australian Broadcasting Authority auction.

The successful bid stalls plans by Sir Richard Branson and John Singleton to launch a rival FM network through their joint venture, Virgin Radio Australia.

But DMG's win comes at a high cost, with analysts predicting it could take between three and five years to recoup its investment in a market that yields about $140 million in advertising revenue a year. The higher than expected price could also cost DMG a new licence in Brisbane, but DMG chief executive Paul Thompson said it was worth it to keep Virgin Radio out of Sydney.

"If they had got a licence and used it as a platform to launch a national network ... it would have been very dangerous for us," Mr Thompson said immediately after the auction.

He said the price compared well with the $155 million he paid in 2001 for DMG's first Sydney licence, and the $26 million paid by broadcaster Hot Tomato for a Gold Coast licence in 2002.

"However, I don't think you would ever say $106 million is a bargain," he said.

Mr Thompson hopes to have a new station operating in Sydney before Christmas, aimed at listeners aged over 40. DMG's high-rating Nova network is aimed at listeners under 40.

He is also still interested in bidding for the new Brisbane licence up for auction next Thursday but expects aggressive bidding from four or five buyers.

"Brisbane is pretty important, but I am now almost convinced it will go for a price that will be hard to sustain," he said. "We are not adopting an attitude of 'we have to get it'."

Analysts expect the Brisbane licence to go for as much as $90 million although the market only generates about $65 million in advertising revenue a year.

A Melbourne licence, due for auction in August, could fetch about $70 million, they said.

DMG, owned by British-based Daily Mail & General Trust, has now spent $401 million on metropolitan radio licences in Australia, a market that last year generated advertising revenue worth about $737 million from FM and AM stations, according to the Commercial Economic Advisory Service of Australia.

Virgin Radio, the only other bidder on the day, pulled out of the auction at $105 million.

"We knew how to make money at a certain (price) and we didn't know how to make money after that," said Mr Singleton, whose Macquarie Radio Network owns Sydney AM talkback stations 2GB and 2CH.

He said Virgin Radio was a serious player and was still in the market for Brisbane and Melbourne.

"$100 million is a lot of money," he said. "You could buy a lot of horses for that."

Shaw Stockbroking analyst Brent Mitchell said DMG had little choice but to bid aggressively to prevent Virgin from attacking its under-40s market.

However, he said Virgin's task of building a national network was now much more difficult.